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Andrew Willis: On Morningstar.ca we have a heatmap that shows the daily performance of Canadian stocks, and this year, it was dominated by Teck Resources (TECK.B). The stock was the biggest gainer in our coverage universe up North, but it was a wild ride with all the speculation – and now it’s the most expensive.
The idea of investing in a miner of coal that’s needed for steel production, or copper that’s needed in microchips, in a time of inflation, is appealing. But while that sounds intrinsically valuable, there’s more to consider when looking at the other end of the value chains here - like who’s buying.
In Teck’s case, equity analyst Jon Miller says China plays a defining role for Teck as the biggest buyer of everything the company digs out of the ground. Unfortunately, we expect demand for most of Teck’s commodities to slow down as the Chinese economy shifts from fixed asset investment to household consumption. With that potential demand drop, we would still expect Teck to be profitable – though likely much less than what the share price suggests right now.
For Morningstar, I’m Andrew Willis.
